By Michael Elkins
PagerDuty, Inc. (NYSE:PD) announced today that the American cloud computing company will be eliminating some roles and creating new ones in high-talent, lower cost areas. The action will result in a headcount reduction of 7%, impacting about 80 roles.
The changes come as part of the Company's ongoing actions to drive efficient growth and expand operating margins, the Company is advancing global scaling initiatives designed to increase the Company's capacity while improving its cost structure. The changes include reallocating certain roles and realigning teams to continue to improve operational resiliency and agility and rationalizing the Company's real estate footprint.
Management estimates that PD will incur non-recurring charges in a range of $5.0 million to $7.0M in connection with the headcount reductions, primarily consisting of severance payments, notice pay, employee benefits contributions, and related costs. A majority of the changes are expected to happen in 4Q23.
After speaking with PD management, Credit Suisse analysts view the reduction as "a very positive step toward increasing business efficiency without trading off growth." The company now expects about 8% points of operating margin improvement in FY23.
Concurrent with the Company's strategy, PD is also considering real estate rationalization in line with the distributed nature of the workforce and changed use of office facilities. This will include early termination of leases, which will result in one-time expenses in a range of $14.0M to $16.0M. The Company expects a majority of these charges will be incurred in FY24.
PagerDuty's CEO, Jennifer Tejada stated, "We are committed to continuing to grow PagerDuty's revenue more than 20% year-over-year even in an uncertain economic environment. At the same time, we remain committed to continue the trend of significantly improving our operating margin, at least at the same level of improvement as FY23, balancing growth and profitability. These planned changes are designed to reinforce our go-to-market execution, improve operating margins, and enable us to continue to operate from a position of strength. While any action that impacts our employees is difficult, we are confident this is the right path forward for our company over the long term. I want to thank all of our departing employees for their hard work, significant contributions, and commitment to our customers."
The company also announced a CRO transition as Dave Justice, the company's CRO, is leaving after three years to pursue another opportunity at the end of the fiscal year. Jeremy Kmet, previously the Company's Senior Vice President, North America Sales and Customer Acquisition, has been appointed Senior Vice President of Global Field Operations, reporting to CEO Jennifer Tejada, effective February 1, 2023.
"Jeremy is a capable global leader with a track record of success. As we progress towards our goal of operating as a Rule of 40 company, I am confident in his ability to lead our GTM teams through our next phase of efficient growth," said Tejada. "Jeremy is well respected by our customers, partners and employees, has deep product and domain expertise, and has demonstrated his ability to scale our unique go-to market model effectively and profitably."
Shares of PD are down 2.81% in mid-day trading on Tuesday.